Comparative Advantage Winter 2014 Finance

The Provision of Microfinance in the Aishwarya Ramesh

Abstract In this essay, I responded to the research question “What Impacts has the Provision of Microfinance had on Thirteen Self Help Groups in the Nilgiris District of ?” I evaluated the individual and household impacts of microfinance for these 13 self-help groups in the towns of , and , in order to analyse and assess the benefits of microfinance. The scope of this investigation was to determine the extent to which microfinance helped individuals by using data per- taining to their income levels, type of education and healthcare that they have access to, and belongings and valuables they own that reflect their standard of living. I did this by using the data to derive calculations in relation to the amount of monthly income they earn, the loan that they owe, and the proportion of income needed to repay the loan. I investigated the financial stability of each of the groups, and evaluat- ed the benefits gained from microfinance. My primary data included interviews with the self-help groups in the Nilgiris and the REPCO foundation in . My sec- ondary data consisted of economic statistics, which I obtained from the Office of the Assistant Director of Statistics in Ooty, and research papers from the Internet.

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Figure 1: Map of the Nilgiris District2 Introduction My research question is “What Impacts has the Provision of Microfinance had on Thirteen Self Help Groups in the Nilgiris Dis- trict of Tamil Nadu?” and it addresses the socio-eco- nomic impact of microfi- nance in the Nilgiris dis- trict. The Nilgiris district, known for its flourishing tea estates, has a popu- lation of around 735071 people, 360170 males and 374901 females1. The Nil- giris district comprises of four main towns, which are Gudalur, Coonoor, Ooty ly between the members of the group. The in- (also known as Udhagamandalam) and Kotagiri. terest rates that the RFMC charges are 17% for My essay will focus solely on the aid giv- loans up to two lakhs ($4508 SGD) and 18% for en by the Repco Foundation for Micro Cred- loans that exceed two lakhs. RFMC’s head office it to self-help groups in Ooty, Coonoor, and is based in Chennai4, and has 40 branches that Kotagiri. I will assess the impacts the foun- provide credit to 23 different districts, of which dation has had on the citizens of the Nilgiris. it has loaned the most to the district of Nilgiris. The Repco Foundation for Micro Credit, a RFMC has lent a total of 7150.12 lakh rupees subsidiary of the REPCO government bank, is ($16,119,450.65 SGD) to 2340 self-help groups a non-profit organization that is “committed to in the Nilgiris alone and its total disbursement the development of self-help groups (SHG’s)”3 to the 23 districts adds up to 25507.01 lakh ru- and provides micro finance to poor men and pees ($575,037,885.94 SGD) for 18158 SHG’s 5 women in urban and rural areas in order to al- I will answer the research question by as- leviate poverty and empower them. A self-help sessing and evaluating the benefits of mi- group is a group formed by 12–20 people in cro financing to 13 recipient groups of order to set up a joint or individual business. women. I will also consider the effect of micro- The money that they receive is divided equal- finance on the individuals and their households.

1Office of the Assistant Director of Statistics, Ooty, Nilgiris 2“Home: District of The Nilgiris District, Tamil Nadu, ” The Nilgiris. http://nilgiris.nic.in/block_map.html (accessed Au- gust 15, 2012) 3Repco Foundation for Micro Credit: http://www.repcofoundation.com/mission.html (accessed July 17 2012) 4Repco Foundation for Micro Credit: http://www.repcofoundation.com/contactus.html (accessed July 17 2012) 5Repco Foundation for Micro Credit: http://www.repcofoundation.com/outreach.html (accessed July 17 2012) 69 Comparative Advantage Spring 2014 Finance

finance after observing the ubiquitous pover- tistics in Ooty to determine the impact of micro- ty that was present throughout my home coun- finance on factors that effect economic growth. try India, particularly in rural areas. The idea of micro finance intrigued me, and working with Theory REPCO bank gave me the opportunity to under- Microfinance, an important concept in busi- stand the power of micro finance and look into ness and economics, is a financial service that is how it affects the individuals I interviewed in provided to people who live in rural areas and the Nilgiris. Microfinance is an important eco- cannot access banking facilities in order to start nomic tool, since it can impact the development businesses to raise their income and standards of of a country by raising standards of living, im- living. prove literacy rates, and give more people access Microfinance is given to individual entrepre- to merit goods such as education and healthcare. neurs or is lent to small businesses where a few entrepreneurs form a self-help group (SHG) and Methods of Data Collection start up a joint or separate venture. The entre- In order to gauge how effective microfinance preneurs use the money they receive to start up is to the recipients surveyed in the Nilgiris, I will a business and they are trained in requisite skills need to assess what impact it has had on individ- in order to run the business. Once the business ual households who have received micro loans. starts to prosper, they are able to buy assets such I will summarize the positives and negatives of as jewellery (an important store of value in India) microfinance and the success of RFMC so far. and are able to give their children good healthcare The majority of the loans that RFMC gives are and education. Figure 2 shows how microfinance to female groups. For the purpose of this essay I works and the cyclical nature of microfinance. will be focusing on the female subset of the groups that receive microfinance. Narrowing Figure 2: Microfinance Cycle my focus will allow me to investigate the significant impacts that microfi- nance has on females as individuals. My research consists of mainly prima- ry data and some secondary data that I will analyse in order to respond to the research question. I have interviewed the project managers at RFMC Chen- nai and Kotagiri, as well as 13 self-help groups based in the Nilgiris to address the issue of the advantages and dis- advantages of microfinance. My sec- ondary data will comprise of research from the Internet, books and econom- ic data that I have collected from the Office of the Assistant Director of Sta-

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Microfinance is essentially a small loan given to nance aids the poor, I conducted interviews with poor people, and the loans are generally between 13 different self-help groups, all of which are en- $100-$500 per person, since they may have diffi- gaged in a diverse range of businesses. Table 1 culty in repaying bigger loans along with interest. summarizes the research collected from the in- terviews and gives insight into the businesses run Analysis of the Benefits and Costs of Microfi- by the groups and the size of their current loan. nance to the Target Groups In order to assess the extent to which microfi-

Table 17

Group Name Enterprises Current Monthly Monthly Group Amounth % of Income - Number of Loan (SGD) Income Income Per Income in Each Group Needed to People Per Group Member 25 Months has to Pay Repay Loan (SGD) (SGD) (SGD) Back (SGD) within 256 Months Roja women Tea 4th Loan - $2041 $157 $51025 $13260 26.0% - 13 people Cultivation $11237 Thalirgal - Vessels 2nd Loan - $369 $33 $9900 $13260 133.9% 12 people (aluminium) $11237 Shop Sunflower - Tea Shop, 3rd Loan - $672 $56 $16800 $13200 78.9% 12 people Tea Cultiva- $11237 tion, Tailor- ing, Provi- sion Store Diamond - Canteen, 3rd Loan - $1080 $90 $27000 $13260 49.1% 12 people Candles, Tea $11237 Shop, Tailor- ing Mount Rose Paper Bag 3rd Loan - $540 $45 $13500 $12730 91.6% - 12 people Production $10788 Joy - 13 Chocolates, 2nd Loan - $1755 $135 $43875 $9282 21.1% people Tailoring, $7866 Pickles, Canteen, Detergents

6Appendix 1. Question 10 Interview with Mr Srinivasan 7Appendix 2. Interview with Self Help Groups

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Group Name Enterprises Current Monthly Monthly Group Amounth % of Income - Number of Loan (SGD) Income Income Per Income in Each Group Needed to People Per Group Member 25 Months has to Pay Repay Loan (SGD) (SGD) (SGD) Back (SGD) within 256 Months Rose Wing - Incense 2nd Loan - $1620 $135 $40500 $13260 32.7% 12 people Sticks, $11237 Dairy Farm, Handicrafts, Chocolates, Canteen Varashakti - Herbal Oils, 2nd Loan - $2198 $157 $54950 $9546 17.4% 14 people Handicrafts $8090 Muthamil Pickles, 4th Loan - $1344 $112 $33600 $18564 55.3% Women - 12 Toys, $15732 people Handicrafts Thiruvan- Handicrafts 2nd Loan - $804 $67 $20100 $7956 39.6% namalai - 12 $6742 people Pearl - 14 Nursery, 4th Loan - $1260 $90 $31500 $18564 58.9% people Canteen $15732 Silver Moon Beauty Par- 2nd Loan - $1080 $270 $27000 $1971 7.3% - 4 people lour $1685 (8 people defaulted) Mangalam - Provisions 4th Loan - $1260 $90 $31500 $18564 58.9% 14 people Store $15732

In Table 1, I have calculated how much each group and added it to the loan. I then divided the total has to pay at the end of 25 months and the pro- loan amount by the total income and multiplied portion of income needed in order to do so. The it by 100 in order to get the percentage of income interest rate is 17% for loans under $45978 and needed to repay the loan. 18% for loans above $4597. I have assumed that e.g.RojaWomen the interest rate is not annual, and is 17% -18% Income for 25 months = $51025 for the whole period of 25 – 60 months. The rate Current Loan Amount = $11237 of conversion that I have used to convert from In- Interest on Loan = 18% dian Rupees to Singapore Dollars is 43.5 INR: 1 SGD. To calculate the loan they need to repay and 0.18 × 51025 = $2023 the proportion of income that is needed in order Total Loan tobe Repaid = $13260 to repay the loan within 25 months, I found the total income earned in 25 months, calculated the 13260 Proportion of Incomeused for Loan = × 100 = 26.0% amount of interest they have to pay on each loan 51025 8Appendix 1. Question 10 interview with Mr. Srinivasan 72 Comparative Advantage Spring 2014 Finance

Table 2. How easily are you able to repay the loan with interest?9

SHG Excellent Very Well Satisfactory Not Well Poor Roja Women Thalirgal Sunflower Diamond Mount Rose Joy Rose Wing Varashakti Muthamil Women Thiruvannamalai Pearl Silver Moon Mangalam

Although microfinance is useful as an alter- their opinion on their loan repayment ability. native source of cheap credit, people may some- This is because the group income earned in 25 times find it difficult to repay their loans fully or months is only $9900, and this could be due to on time. I will further explain this in the next sec- a lack of demand for their products. We can see tion. Below is a Likert Scale that shows the views that their choice of product is not profitable since of the thirteen self-help group members on their none of the other groups engage in selling vessels, repayment ability. and have higher incomes. All of Thalirgal’s in- From the calculations that I derived in Table come is taken up in repaying loans, which means 1, we can see that some of the groups’ opinions they are in debt. This highlights one of the cons on their loan repayment ability do not corre- of microfinance and emphasizes the fact that mi- spond with the data. The groups highlighted in crofinance does not guarantee the success of any red in Table 1 think that their repayment ability business. After the groups receive training and is excellent or very good but are required to pay microfinance, it is up to them to choose a profit- above 50% of their income to repay their loans. able good to sell. 50% is a significant proportion, and these groups Alternatively, the groups highlighted in purple earn relatively less than most of the other groups, pay less than 50% of their income to repay the the highest group income over 25 months being loans. This is because these groups have a higher $33600. income compared to the others, enabling them to The group highlighted in blue, has to pay repay loans relatively easily. The range of incomes 133.9% of their income and this concurs with over 25 months is from $20100-$54950, which is

9Appendix 2. Question 4 Interview with Self Help Groups

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the highest income out of all the group in- ed the ability to repay loans. This accounts for comes. The group scheme that RFMC follows, REPCO’s high repayment rate of 97%-98%10. teaches prospective loan receivers the impor- tance of saving money and repaying loans on The Likert scale below shows how successful each time. Clients only receive loans after they have group thinks their business is. saved money for 6 months and demonstrat-

Table 3. How is the business doing and how well do you think you manage it?11

SHG Excellent Very Well Satisfactory Not Well Poor Roja Women Thalirgal Sunflower Diamond Mount Rose Joy Rose Wing Varashakti Muthamil Women Thiruvannamalai Pearl Silver Moon Mangalam

From the data in tables above, we can see that fallen on four people, and the income generated in most cases there is a direct correlation between from their businesses is not sufficient to repay the the success of the business and the ability to repay loans, provide their family with basic necessities the loans. and pay wages. There is no way to ensure that Thalirgal and Silver Moon are both unsuccess- group members will always co-operate with each ful in their businesses since they are not able to other and contribute towards repaying loans, repay the loans on time. Silver Moon, highlight- which is one of the flaws of the self-help group ed in green in Table 1 cannot repay their loans model. Since there is no rule that prevents peo- on time is because 8 out of 12 people have de- ple from leaving a group, if a group member’s/ faulted from the group, and the business they are members’ business fails to make profits they can engaged in requires them to pay employees. This default from the group. This poses a problem for means that the burden of repaying the loans has the remaining members since they now need to

10Appendix 1. Question 10 Interview with Mr. Srinivasan 11Appendix 2. Question 5 Interview with Self Help Groups 74 Comparative Advantage Spring 2014 Finance

find a way to make extra income in order to repay above. It shows that most of groups are able to the loan taken by all the group members in addi- pay back their loans on time, and this is because tion to supporting their family. Even though this of their responsible use of the loan given to them. problem happens rarely in RFMC, it is one of the In addition, some businesses that are successful social costs of microfinance. are able to pay back loans easily due to synergy Another problem with microfinance is that between team members, the ability to identify everyone who receives funding does not have which goods sell, and efficient production of the the ability to run a successful business. Although goods. This reinforces that they are creditworthy RFMC equips the self-help groups with training and are capable of returning loans. and the skills required to produce goods such as The social impacts of microfinance can be chocolate, candles and various others, microfi- quantified using information such as whether nance does not always prove to be beneficial. “Mi- the clients have access to basic necessities. The crofinance is not for everyone. Entrepreneurial Grameen Bank has a set of indicators which de- skills and ability are necessary to run a successful termine the whether their clients are being ben- microenterprise and not all potential customers efitted by microfinance. Some of these include are equally able to take on debt” This is evident in “having a house with a tin roof, beds for all mem- the case of group 2, Thalirgal. We observe that a bers of the family, access to safe drinking water, lack of expertise of running business, poor mana- and all school-age children attending school” . gerial skills along with low demand for the goods To assess some of the impacts that microfi- produced has caused them difficulty in repaying nance from RFMC has had on individual house- loans. In addition to this, even though the micro- holds, I included some key questions in the in- finance given by RFMC is handed out only after terview in relation to how their socioeconomic checking the clients’ business plans and saving status had risen after taking loans. patterns , it does not guarantee that the self-help In order to measure the change in their stan- groups will use the money responsibly after re- dard of living, I asked them what assets they ceiving it. bought with the profits obtained from the busi- Lennart Båge stated, “The microfinance rev- nesses and the type of healthcare and education olution started with the recognition that poor they have access to. This information is necessary people needed access to loans and that they could to understand what each group can spend their use these funds productively. It has also changed income on, and differences in their expenditure the perception that poor people are not credit before and after receiving microfinance. worthy.” This is observed in the data in the tables

12Morduch, Jonathan. Analysis of the Effects of Microfinance on Poverty Reduction. Page 2 NYU Wagner Work- ing Paper No. 1014: http://www.microfinancegateway.org/gm/document-1.9.29382/Analysis%20of%20the%20 Effects.pdf (Accessed September 12th 2012) 13Appendix 1. Interview with Mr. Srinivasan 14The President of International Fund for Agricultural Development (till 2009) 15Båge, Lennart. “Savings - The forgotten half of microfinance” International Fund for Agricultural Development. www.ifad.org/events/microcredit/op.htm (accessed September 13, 2012) 16MicroCapital Institute “The Social Impact Of Commercial Microfinance” MicroCapital. www.microcapital.org/ downloads/whitepapers/Social.pdf (accessed September 9, 2012)

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Graph 1. Have you bought any assets for yourself such as televisions, jewelry, vehicles, etc.?17

Graph 1 shows us that the assets the most cessities and are able to buy better quality clothes groups purchased with the income earned with and more food. By taking frequent loans, self-help the aid of microfinance were expensive goods such groups are able to learn how to handle their mon- as houses, televisions and jewellery. This shows ey better and are able to diversify their business- that the impact of microfinance has been positive es, thus increasing their income and assets. This for most of the households as they can now afford was observed in a study conducted in Vietnam to buy what they regard as ‘luxury goods’. In most where “participants state that they are now short families, there was only one breadwinner before of for less than one month per year compared they received aid. Due to this, they could not buy to three previously; participants have also diversi- any goods other than basic necessities such as ru- fied their productive activities and have acquired dimentary housing, food and clothing. The rev- more assets than non-borrowers”18. In addition enue generated from the loan provided to them to this the study also stated “Improvements in has acted as a source of extra income, enabling school attendance or in provision of educational them to buy important assets that help raise their materials are also widely reported. Invariably this standard of living such as jewellery, better hous- related to increased household income.”19 This ing and land. The fact that they are able to buy relates to the next part of my investigation where expensive assets suggests that they also spend a I will analyze the impact of microfinance on the higher proportion of their income on basic ne- education of the self-help groups’ children.

17Appendix 2. Question 8 Interview with Self Help Groups 18Morduch, Jonathan. Analysis of the Effects of Microfinance on Poverty Reduction. Page 15 NYU Wagner Working Paper No. 1014: http://www.microfinancegateway.org/gm/document-1.9.29382/Analysis%20of%20the%20Effects.pdf (Accessed Septem- ber 12th 2012) 19Morduch, Jonathan. Analysis of the Effects of Microfinance on Poverty Reduction. Page 15 NYU Wagner Working Paper No. 1014: http://www.microfinancegateway.org/gm/document-1.9.29382/Analysis%20of%20the%20Effects.pdf (Accessed 76 Comparative Advantage Spring 2014 Finance

There are four categories of households – enough to repay the loans and buy basic necessi- Schedule Cast, Schedule Tribes, Other Backward ties, and hence could not spend money on other Castes and Other Households. Most of the self- valuables. Furthermore, author Nick Hamilton help groups belong to Other Households and ac- noted, “Microfinance is supposed to promote cording to economic statistics are better off than business growth. It would be far more beneficial the other three categories of households. Eco- to all if MFIs assessed their potential borrowers nomic statistics show that 16.1% of Other House- and only lent to those individuals who showed holds in Kotagiri, 7.41% of Other Households enough promise to mount and grow a business in Coonoor and 1.91% of Other Households in to a size where they could employ other members Ooty have a monthly income of $11 (499 rupees) of their community.”21 Another reason could be or less20. This indicates that 80% and above of that the income generated from microfinance is Other Households in each of the three towns are too little to expand their business. Since the loan earning more than $11 and it supports the data amounts are quite small, the profits generated will in Table 1 and Graph 1. Microfinance gives every also be relatively small. This limits the scope for individual the opportunity to set up a business expanding the business and increasing produc- to try and earn extra income. The data shown in tivity since a business needs employees in order Table 1 and Graph 1 indicates that most groups to grow and progress. Employees are needed for are able to purchase expensive assets and have in- businesses such as provision stores and canteens comes of $33 (1500 rupees) and above, which is since they will increase the amount of income evidence that microfinance is beneficial and plays earned in a day and increase levels of productiv- a crucial role in any household. ity. For example, limiting the number of people Although microfinance has some benefits, working in canteens increases the waiting time the opposite is also true. Graph 1 also shows that for the customers, causing them to go to another two of the groups that bought no assets at all. eatery, resulting in a loss of potential income. This could be due to the fact that they only had

Charts 1 &2. Do your children go to school? If so, what type of school did they go to before you received 22

microfinance, and what type of school do they go to now (private or government schools)?

20State Planning Commission, and Dhan Foundation. “Human Development Research and Coordination Unit, State Planning Commission, Chennai” Page 88. www.tn.gov.in/spc/reports/The%20Nilgiris.pdf (accessed August 31, 2012) 21Hamilton, Nick, KF13 Haiti, Dominican Republic, and KF14 Colombia. “The Pros and Cons of Microfinance – A View From The Field (Part 2)” http://fellowsblog.kiva.org/2011/05/24/the-pros-and-cons-of-microfinance-a-view-from-the-field-part-2/ (accessed August 20, 2012) 22Appendix 2. Question 10 Interview with Self Help Groups 77 Comparative Advantage Spring 2014 Finance

Charts 1 and 2 illustrate the change in the on the female self-help groups I also found the number of groups that can afford to send their literacy rate for the females alone. The female lit- children to private schools. The ratio of groups eracy rate in the Nilgiris is the fifth highest in the that send their children to private schools to whole of Tamil Nadu, exceeding the female lit- groups that send their children to government eracy rate in Tamil Nadu by 5.58%23. The female schools using the income generated from their literacy rate had increased from 71.6% in 2001 to businesses is 5:1 in contrast to the previous ra- 79.44% in 2011. Part of this increment in female tio of 1:2. The members Silver Moon do not have literacy rate can be attributed to microfinance school-going children; hence they do not need since most of the females that are poverty-strick- to spend on education. The fact that they are still en in the Nilgiris are either housewives or have not able to repay the loan even after forgoing started their own businesses with the aid of mi- expenditure on education, reiterates that the in- crofinance. Developing their literacy was a nec- come they earn is not sufficient to support their essary skill in order for them to be familiar with family and raise their living standards. In the Nil- the procedures involved in applying and receiv- giris District, education seems to be very import- ing loans. ant to families since one of their main priorities The next aspect I investigated to determine is to earn enough money to enrol their children the social impact of microfinance was healthcare. in private English medium schools. In the long Charts 3 and 4 show the percentage of self-help run this is very beneficial since a good education groups that go to government and private hospi- will increase literacy levels and their children will tals. have better chances of securing jobs. Besides having an impact on children’s edu- cation, microfinance also influenc- Charts 3 & 4. Do you feel you have more access to health care than es the literacy rates of its clients. A before? What type of hospital did you go to before receiving micro- specific question that I included in 24 my interview was “Has your litera- finance and what type of hospital do you go to now (government or cy improved in any way? If so, what pricate)? is the cause of this improvement?” and the answer was unanimous. They all said that their literacy had improved tenfold after receiving the loan. The loan compelled them to learn banking skills and how to write in English. This answer can be validated using economic data pertaining to the literacy rate in the Nilgiris. In 2001 the literacy rate was 80.0% and in 2011 it increased by 5.65%. Since my essay focuses

23Office of the Assistant Director of Statistics in Ooty 24Appendix 2. Question 11 Interview with Self Help Groups 78 Comparative Advantage Spring 2014 Finance

The information in the charts indicates that dent and helped them contribute income towards there has been a decrease in the number of household expenditure. Despite microfinance groups that go to government hospitals. Micro- having many benefits, it does not guarantee that finance provided them access to better medical any business set up by a client will be successful. care, which is useful not only to them, but also to Another pitfall of microfinance is that it can cre- the people around them since they have a lesser ate debt for some, like the second group Thalir- risk of getting sick. Private hospitals are consider- gal, who have to pay back an amount that is 33% ably more expensive than government hospitals more than their income. Sometimes groups might due to the better quality of healthcare available. borrow more loans in order to pay back microfi- The increase in the percentage of groups who go nance loans, leading to even more debt. This was to private hospitals shows that they now spend a mentioned in a study conducted by MIT “micro- higher proportion of their income on healthcare. finance is displacing more effective anti-poverty One thing that I noticed when interviewing all measures or even contributing to overborrowing the women’s self-help groups was that all of them and therefore even greater long term poverty. In- were very confident. I realized that microfinance dian households are being “carpet-bombed” by not only helped elevate living standards, but also loans, leading to extreme overindebtedness.” helped empower them. This study of microfinance does leave us with I asked them whether they had learnt any life some unresolved questions, one of which is the skills from this process, and the answer that I got degree of sustainability of microfinance and the from everyone was that they were now indepen- self-help groups themselves. There is also the is- dent and they had learnt banking skills. Addi- sue of whether, as the value of the Indian rupee tionally, they also stated that they did not depend continues to depreciate, the interest rates charged on their husband’s income anymore and could by RFMC will increase and reach the same lev- contribute income to their household and pay for els as those charged by loan sharks. Furthermore, healthcare and education. we start to question whether the income gained through microfinance will be enough to cope Conclusion with economic downturns and inflation. In response to my research question “What Impacts has the Provision of Microfinance had Evaluation on Thirteen Self Help Groups in the Nilgiris Dis- Some things that I could have investigated trict of Tamil Nadu?” I have realized that microf- were the levels of expenditure on healthcare and inance has had a positive impact on the members education of the self-help groups compared to of most of the groups surveyed. people who don’t use microfinance and the range Microfinance has more benefits than costs, of expenditure on healthcare and education with- and if used correctly, can provide optimal results in the self-help groups themselves to determine that will be useful in aiding families with educa- the cause of the disparity. Also, I was limited to tion and healthcare, expanding their businesses a representative sample size of 13 groups since it and living standards. Furthermore, it has also em- was all I could gather with the time I had. powered the women, and made them indepen-

25Banerjee, Abhijit , Esther Duflo, Rachel Glennerster, and Cynthia Kinnan. “The miracle of Microfinance? Evidence from a randomized evaluation.” MIT Economics economics.mit.edu/files/5993 (accessed September 28, 2012) 79 Comparative Advantage Spring 2014 Finance

References: Websites/Research Papers: Banerjee, Abhijit , Esther Duflo, Rachel Glennerster, and Cynthia Kinnan. “The miracle of Microfinance? Evidence from a randomized evaluation” MIT Economics. economics.mit.edu/files/5993 (accessed September 28, 2012) Båge, Lennart. “Savings - The forgotten half of microfinance” International Fund for Agricultural Development. www.ifad.org/events/microcredit/op.htm (accessed September 13, 2012) Hamilton, Nick, KF13 Haiti, Dominican Republic, and KF14 Colombia. “The Pros and Cons of Microfinance – A View From The Field (Part 2)” Kiva Stories from the Field. http://fellowsblog.kiva.org/2011/05/24/the-pros- and-cons-of-microfinance-a-view-from-the-field-part-2/ (accessed August 20, 2012) “Home: District of The Nilgiris District, Tamil Nadu, India” The Nilgiris. http://nilgiris.nic.in/block_map.html (accessed August 15, 2012) MicroCapital Institute “The Social Impact Of Commercial Microfinance” MicroCapital. www.microcapital.org/ downloads/whitepapers/Social.pdf (accessed September 9, 2012) Morduch, Jonathan. “Analysis of the Effects of Microfinance on Poverty Reduction.” Microfinance Gateway” NYU Wagner Working Paper No. 1014 www.microfinancegateway.org/gm/document-1.9.29382/Analysis of the Effects.pdf. (accessed September 12, 2012) “Repco Foundation for Micro credit (RFMC)” Repco Foundation for Micro credit (RFMC). http://www.repcofoun dation.com (accessed July 23, 2012) State Planning Commission, and Dhan Foundation. “Human Development Research and Coordination Unit, State Planning Commission, Chennai” . www.tn.gov.in/spc/reports/The%20Nilgiris. pdf (accessed August 31, 2012)

Economic Data: Office of the Assistant Director of Statistics, Ooty, Nilgiris

Appendix I - Interview with RFMC Chennai Representative Mr Srinivasan 1. What is the geographical coverage for REPCO? Up to 20km range within the villages. We help more rural places than urban places. 2. What are the advantages and disadvantages of micro financing? Advantages Disadvantages Credit Portfolios increase Fraudulent Activities Multi finance MFI’s exploit people by charging higher interest rates Financial help at low rates of interest Multi lending reduces repayment powwer of people 3. Where have you lent the most loans? Gudalur and Kotagiri 4. Do you have any government support? Tamil Nadu Women Government Corporation. The Government provides subsidies to groups. 5. How flexible are your rules compared to MFI’s & Banks? They are much more flexible compared to normal MFI’s and banks. 6. How much do you lend, who do you lend it to, and what for? We lend a maximum of 7.5 lacs ($16856) and minimum of 60000 rupees ($1337). Vegetable shops, agricultural pur- poses, catering, beautician centres, jewellery shops, textiles, rice business, provisional stores, fruit shops and various other activities. SHG’s have to open savings bank account and save x amount each month. For 6 months they have to have meetings and prove each of them have saved and put it in their savings account before qualifying for loans. 80 Comparative Advantage Spring 2014 Finance

7. How do you recover your administrative costs? From documentation charges, audit fees and 2% of disbursement loan 8. How do you decide to whom you lend to? We analyse what the main needs of the SHG’s are by looking at their financial situations, taking account of the credit plans of each person in the group and ascertaining what they will use the money for. 9. How do you decide how much you lend to them? We decide based on the project that they decide to pursue. 10. What is the interest and repayment rate like? Repayment period - 25 months - 60 months. 97% - 98% payback Interest Rate – 17% for up to 2 lacs ($4597) & 18% for above 2 lacs 11. How successful do you think the business is? It is a big success but we are facing difficulties due to individual moneylenders. Moneylenders don’t need group schemes – 10000 rupees for each member, We have a very low interest rate compared to others Some MFI’s charge 24% – 26% interest rates 12. How are you different from Banks/MFI’s? Our approach is development oriented rather than target (bank) or profit (MFI) oriented. The rules are more flexible than the rules of MFI’s & Banks. We try to educate people about repayment at the time of loan disbursement and people mostly repay the money on time with interest. Our transaction costs are low for customers and financiers whereas for banks and MFI’s transaction costs are high for the customers. 13. How do you reach people in the remote areas? We have mobile branches for collecting loans, savings bank acceptance & withdrawals in places that don’t have access to banks – 90% of collections. Disbursements are done in the Coonoor Branch (REPCO BANK branch)

Appendix II - Sample Interview for the Self Help Groups 1. What was the loan amount that you received? 2. What businesses do you use the money for? 3. To what extent has the loan you have received helped you? (Benefits and Losses) 4. How easily are you able to repay the loans with interest? SHG Excellent Very Well Satisfactory Not Well Poor

5. How is the business doing and how well do you think you manage it? Product Excellent Very Good Satisfactory Not Good Poor

6. Has life improved/worsened after receiving the loans? Group Improved Stayed the same Worsened 1 2 3

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7. How much income do you earn per month? 8. Have you bought any assets for yourself such as televisions, jewelry, vehicles, etc.? 9. Do you think the process has taught you any life skills? If so, what? 10. Do your children go to school? If so, what type of school did they go to before you received microfinance, and what type of school do they go to now (private or government schools)? 11. Do you feel you have more access to health care than before? What type of hospital did you go to before receiving microfinance and what type of hospital do you go to now (government or private)? 12. Has your literacy improved in any way? If so, what is the cause of this improvement?

82 Macroeconomics

In this section:

Macroeconomic Forces within the Market for Prostitution Cody Cook, Scott Loring, Teddy Niemiec, Kayla Reinherz

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